2000 Ruling 2000-0018113 - Partial butterfly

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: This is a partial split-up butterfly involving related parties, namely a father and mother and their three children. The assets of the distributing corporation (Amalco) consist of public company shares, some of which will be split among the three children by means of a partial butterfly to the children's separate holding companies, so that each child may deal with such property independently from the others. The remaining public company shares will continue to be held by the distributing corporation (Amalco) whose shareholders include the three children and the father and mother's holding company (HoldcoJ). HoldcoJ controls Amalco by virtue of holding all of the voting common shares.

Position: This partial split-up butterfly reorganization involves related parties and is part of the parents' estate planning process. The partial butterfly does not offend subparagraph 55(3.2)(c) because the children's holding companies were established as part of a partial estate freeze to allow the children to participate in the future growth of the public company shares, and did not acquire their shares of the distributing corporation (Amalco) from another person in contemplation of the proposed distributions by Amalco. In fact, the holding companies acquired their Amalco shares directly from Amalco as part of the estate freeze, and not from the children involved in the split-up.

Reasons:

XXXXXXXXXX 2000 - 001811

Attention: XXXXXXXXXX

XXXXXXXXXX , 2000

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayers. We also acknowledge receipt of your facsimiles as well as the information provided in various telephone conversations.

Throughout this letter, the corporate and individual taxpayers will be referred to as follows:

XXXXXXXXXX Investco
XXXXXXXXXX Amalco
XXXXXXXXXX JKLMco
XXXXXXXXXX HoldcoJ
XXXXXXXXXX HoldcoK
XXXXXXXXXX HoldcoL
XXXXXXXXXX HoldcoM
XXXXXXXXXX. Opco

XXXXXXXXXX Mr. J

XXXXXXXXXX Mrs. J

XXXXXXXXXX Ms. K

XXXXXXXXXX Mr. L

XXXXXXXXXX Mrs. L

XXXXXXXXXX Mr. M

XXXXXXXXXX Mrs. M

XXXXXXXXXX Ms. K 1999 Family Trust

XXXXXXXXXX Mr. L 1999 Family Trust

XXXXXXXXXX Mr. M 1999 Family Trust

The Tax Services Office of Investco, JKLMco and HoldcoJ is XXXXXXXXXX. Their corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.

Each of the corporate and individual taxpayers is resident in Canada for the purposes of the Act.

To the best of your knowledge, and that of any of the taxpayers, none of the issues involved in this ruling request is:

(i) involved in an earlier return of any of the taxpayers or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a tax return previously filed by any of the taxpayers or a related person;

(iii) under objection by any of the taxpayers or a related person;

(iv) before the courts and there is no judgment that has been issued in which the time limit for appeal to a higher court has not expired; and

(v) the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate.

DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

(b) "adjusted cost base" ("ACB") has the meaning assigned to that term by section 54 of the Act;

(c) "agreed amount" in respect of a property means the amount that the transferor and the transferee of the property have agreed upon in an election under subsection 85(1);

(d) "BCA" means the Company Act (XXXXXXXXXX) and, where applicable, its predecessor statutes;

(e) "Canadian-controlled private corporation" ("CCPC") has the meaning assigned to that term by subsection 125(7) of the Act;

(f) "capital property" has the meaning assigned to that term by section 54 of the Act;

(g) "dividend refund" has the meaning assigned to that term by subsection 129(1) of the Act;

(h) "eligible property" has the meaning assigned to that term by subsection 85(1.1) of the Act;

(i) "forgiven amount" has the meaning assigned to that term by subsection 80(1) and 80.01(1) of the Act;

(j) "paid-up capital" ("PUC") has the meaning assigned to that term by subsection 89(1) of the Act;

(k) "private corporation" has the meaning assigned to that term by subsection 89(1) of the Act;

(l) "series of transactions or events" has the meaning assigned to that term by subsection 248(10) of the Act;

(m) "taxable Canadian corporation" ("TCC") has the meaning assigned to that term by subsection 89(1) of the Act; and

(n) "taxable dividend" has the meaning assigned to that term by subsection 89(1) of the Act.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

FACTS

1. Investco is a CCPC and a TCC incorporated on XXXXXXXXXX under the provisions of the BCA. The issued and outstanding share capital of Investco consists of XXXXXXXXXX Voting Common shares, XXXXXXXXXX Non-Voting Common shares, and XXXXXXXXXX Preferred shares. The shareholders and their respective holdings of Investco are as follows:

Name of Shareholder Number and Class of Shares

Mr. J XXXXXXXXXX Preferred

JKLMco XXXXXXXXXX Voting Common
XXXXXXXXXX Non-Voting Common

HoldcoJ XXXXXXXXXX Non-Voting Common

HoldcoK XXXXXXXXXX Non-Voting Common

HoldcoL XXXXXXXXXX Non-Voting Common

HoldcoM XXXXXXXXXX Non-Voting Common

All of the issued and outstanding shares of Investco are capital property in the hands of each of the shareholders.

2. JKLMco is a CCPC and a TCC incorporated on XXXXXXXXXX under the provisions of the BCA. The issued and outstanding share capital of JKLMco consists ofXXXXXXXXXX Voting Common shares, XXXXXXXXXX Non-Voting Common shares, XXXXXXXXXX Non-Voting Common shares and XXXXXXXXXX Preferred shares. The shareholders and their respective holdings of JKLMco are as follows:

Name of Shareholder Number and Class of Shares

Mr. J XXXXXXXXXX Voting Common

XXXXXXXXXX Preferred

Mrs. J XXXXXXXXXX Non-Voting Common

XXXXXXXXXX Preferred

Ms. K XXXXXXXXXX Non-Voting Common

Mr. L XXXXXXXXXX Non-Voting Common

Mr. M XXXXXXXXXX Non-Voting Common

All of the issued and outstanding shares of JKLMco are capital property in the hands of each of the shareholders. Mrs. J is the spouse of Mr. J. Ms. K, Mr. L and Mr. M are the adult children of Mr. J and Mrs. J.

3. HoldcoJ is a CCPC and a TCC incorporated on XXXXXXXXXX under the provisions of the BCA. The issued and outstanding share capital of HoldcoJ consists of XXXXXXXXXX Voting Common shares, all of which are held by Mr. J. All of the issued and outstanding shares of HoldcoJ are capital property in the hands of the shareholder.

4. HoldcoK is a CCPC and a TCC incorporated on XXXXXXXXXX under the provisions of the BCA. HoldcoK has not yet filed its first return and has not yet established a business number. The issued and outstanding share capital of HoldcoK consists of XXXXXXXXXX Voting Common shares, XXXXXXXXXX Non-Voting Common shares, XXXXXXXXXX Non-Voting Common shares and XXXXXXXXXX Preferred shares. The shareholders and their respective holdings of HoldcoK are as follows:

Name of Shareholder Number and Class of Shares

Ms. K XXXXXXXXXX Voting Common

XXXXXXXXXX Non-Voting Common
XXXXXXXXXX Preferred

Ms. K, as trustee of the XXXXXXXXXX Non-Voting Common

Ms. K 1999 Family Trust

All of the issued and outstanding shares of HoldcoK are capital property in the hands of each of the shareholders.

5. HoldcoL is a CCPC and a TCC incorporated on XXXXXXXXXX under the provisions of the BCA. HoldcoL has not yet filed its first return and has not yet established a business number. The issued and outstanding share capital of HoldcoL consists of XXXXXXXXXX Voting Common shares, XXXXXXXXXX Non-Voting Common shares, XXXXXXXXXX Non-Voting Common shares, XXXXXXXXXX Non-Voting Common shares and XXXXXXXXXX Preferred shares. The shareholders and their respective holdings of HoldcoL are as follows:

Name of Shareholder Number and Class of Shares

Mr. L XXXXXXXXXX Voting Common

XXXXXXXXXX Non-Voting Common
XXXXXXXXXX Preferred

Mr. L, as trustee of the XXXXXXXXXX Non-Voting Common

Mr. L 1999 Family Trust

Mrs. L XXXXXXXXXX Non-Voting Common

All of the issued and outstanding shares of HoldcoL are capital property in the hands of each of the shareholders. Mrs. L is the spouse of Mr. L.

6. HoldcoM is a CCPC and a TCC incorporated on XXXXXXXXXX under the provisions of the BCA. HoldcoM has not yet filed its first return and has not yet established a business number. The issued and outstanding share capital of HoldcoM consists of XXXXXXXXXX Voting Common shares, XXXXXXXXXX Non-Voting Common shares, XXXXXXXXXX Non-Voting Common shares, XXXXXXXXXX Non-Voting Common shares and XXXXXXXXXX Preferred shares. The shareholders and their respective holdings of HoldcoM are as follows:

Name of Shareholder Number and Class of Shares

Mr. M XXXXXXXXXX Voting Common

XXXXXXXXXX Non-Voting Common
XXXXXXXXXX Preferred

Mr. M, as trustee of the XXXXXXXXXX Non-Voting Common

Mr. M 1999 Family Trust

Mrs. M XXXXXXXXXX Non-Voting Common

All of the issued and outstanding shares of HoldcoM are capital property in the hands of each of the shareholders. Mrs. M is the spouse of Mr. M.

7. The paid-up capital represented by the issued shares of the capital stock of the companies referred to above is as follows:

Name of Company Number and Class of Shares Paid-Up Capital

Investco XXXXXXXXXX Voting Common $ XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Preferred XXXXXXXXXX
Total: $ XXXXXXXXXX

JKLMco XXXXXXXXXX Voting Common $ XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Preferred XXXXXXXXXX
Total: $ XXXXXXXXXX

HoldcoJ XXXXXXXXXX Voting Common $ XXXXXXXXXX
Total: $ XXXXXXXXXX

HoldcoK XXXXXXXXXX Voting Common $ XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Preferred XXXXXXXXXX
Total: $ XXXXXXXXXX

HoldcoL XXXXXXXXXX Voting Common $ XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Preferred XXXXXXXXXX
Total: $ XXXXXXXXXX

HoldcoM XXXXXXXXXX Voting Common $ XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Non-Voting Common XXXXXXXXXX
XXXXXXXXXX Preferred XXXXXXXXXX
Total: $ XXXXXXXXXX

8. The only assets of Investco are shares of Opco, a public company listed on the XXXXXXXXXX Stock Exchange, and a receivable from JKLMco in the amount of $XXXXXXXXXX. As of XXXXXXXXXX, Investco owned XXXXXXXXXX Common shares of Opco. All of the shares of Opco held by Investco are capital property to Investco. The shares of Opco held by Investco represent XXXXXXXXXX% of the total issued and outstanding shares of Opco.

PROPOSED TRANSACTIONS

9. Investco and JKLMco will amalgamate under the provisions of the BCA to form Amalco. One of the results of the amalgamation will be that the inter-company receivable referred to in paragraph 8 above will be extinguished.

10. The issued and outstanding share capital of Amalco will consist of XXXXXXXXXX Voting Common shares, XXXXXXXXXX Non-Voting Common shares, and XXXXXXXXXX Preferred shares. The shareholders and their respective holdings of Amalco will be as follows:

Name of Shareholder Number and Class of Shares

Mr. J XXXXXXXXXX Voting Common

XXXXXXXXXX Preferred

Mrs. J XXXXXXXXXX Voting Common

XXXXXXXXXX Non-Voting Common

Ms. K XXXXXXXXXX Non-Voting Common

Mr. L XXXXXXXXXX Non-Voting Common

Mr. M XXXXXXXXXX Non-Voting Common

HoldcoJ XXXXXXXXXX Non-Voting Common

HoldcoK XXXXXXXXXX Non-Voting Common

HoldcoL XXXXXXXXXX Non-Voting Common

HoldcoM XXXXXXXXXX Non-Voting Common

All of the issued and outstanding shares of Amalco are capital property in the hands of each of the shareholders.

11. Mr. J will transfer XXXXXXXXXX Voting Common shares of Amalco to HoldcoJ in return for preferred shares of HoldcoJ which are equal in value to the fair market value of the Amalco shares so transferred.

12. Mrs. J will transfer XXXXXXXXXX Voting Common shares and XXXXXXXXXX Non-Voting Common shares of Amalco to HoldcoJ in return for preferred shares of HoldcoJ which are equal in value to the fair market value of the Amalco shares so transferred.

13. Mr. J and HoldcoJ, and Mrs. J and HoldcoJ will respectively elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6) of the Act, to have the rules in subsection 85(1) of the Act apply to the transfer of the Amalco shares to HoldcoJ, as described in paragraphs 11 and 12 above. The agreed amount specified in each election will be equal to the lesser of the ACB to Mr. J and Mrs. J, respectively, of the Amalco shares immediately before the transfer, and the fair market value thereof.

14. Amalco will transfer to each of HoldcoK, HoldcoL and HoldcoM, respectively, that number of shares of Opco such that the fair market value of the shares transferred will be equal to that proportion of the fair market value of all of the shares of Opco owned by Amalco determined immediately before such transfer that:

(a) the aggregate fair market value, immediately before the transfer, of all of the shares of the capital stock of Amalco owned by each of HoldcoK, HoldcoL and HoldcoM, respectively, at that time

is of

(b) the aggregate fair market value, immediately before the transfer, of all of the issued and outstanding shares of the capital stock of Amalco at that time.

15. In consideration for the transfers described in paragraph 14 above, HoldcoK, HoldcoL and HoldcoM will each issue that number of preferred shares of its capital stock to Amalco having an aggregate fair market value and redemption amount equal to the aggregate fair market value of the property acquired by HoldcoK, HoldcoL and HoldcoM, respectively.

16. In respect of the transfers described in paragraph 14 above, Amalco and HoldcoK, Amalco and HoldcoL, and Amalco and HoldcoM will respectively elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6) of the Act, to have the rules in subsection 85(1) of the Act apply to the transfer of each property of Amalco that is an eligible property to HoldcoK, HoldcoL and HoldcoM, respectively. The agreed amount specified in the elections in respect of the property transferred will be equal to the lesser of the fair market value of such property and the ACB of the property at the time of the transfer.

17. HoldcoK, HoldcoL and HoldcoM will each redeem their respective preferred shares issued to Amalco, as described in paragraph 15 above, by each issuing to Amalco a non-interest-bearing promissory note payable on demand ("HoldcoK Note", "HoldcoL Note", and "HoldcoM Note", respectively), having a principal amount and fair market value equal to the aggregate redemption amount of the preferred shares so redeemed. Amalco will accept the HoldcoK Note, HoldcoL Note and HoldcoM Note issued by HoldcoK, HoldcoL and HoldcoM, respectively, as full payment of the aggregate redemption amount of the Preferred shares so redeemed.

Immediately before such share redemptions, HoldcoK, HoldcoL and HoldcoM will each be related to Amalco within the meaning of subsection 251(2) and will be connected with Amalco within the meaning assigned by subsections 186(2) and 186(4) of the Act.

18. Immediately following the foregoing preferred share redemptions, Amalco will purchase for cancellation all of the shares of its capital stock held by HoldcoK, HoldcoL and HoldcoM, respectively, at their fair market value. Amalco will pay the purchase price for such shares by transferring and delivering for cancellation the HoldcoK Note, HoldcoL Note and HoldcoM Note to the respective corporations. HoldcoK, HoldcoL and HoldcoM will each accept the return of their respective promissory notes as full payment of the purchase price of the Amalco shares so purchased.

ADDITIONAL INFORMATION

19. None of the taxpayers have any outstanding tax liabilities that could be affected by the proposed transactions.

20. None of the shares of Investco or JKLMco were acquired in contemplation of the proposed transactions set out in paragraphs 9 to 18 above.

21. No assets have been or will be acquired or disposed of, and no liabilities have been or will be incurred by Investco, JKLMco or Amalco in contemplation of and before the proposed transfers of property described in paragraph 14 above, except as described in this letter.

22. HoldcoK, HoldcoL and HoldcoM were established as part of a partial estate freeze by Mr. J, solely for the purpose of allowing Mr. J's children and grandchildren to participate in the future growth in the value of the Opco shares. None of these holding companies was established in contemplation of the proposed transactions set out in paragraphs 9 to 18 above.

23. No person participating in the proposed transactions will sell or transfer any property as part of the series of transactions or events to an unrelated person or partnership subsequent to the proposed transactions, except as described in this letter.

24. Amalco will be related to each of HoldcoK, HoldcoL and HoldcoM for purposes of Parts IV, IV.1 and VI.1 of the Act as they apply to the dividends that are deemed to be paid on the redemption of the Preferred shares described in paragraph 17 above.

25. None of the shares of Investco, JKLMco, Amalco, HoldcoJ, HoldcoK, HoldcoL or HoldcoM are or will be, at any time during the implementation of the proposed transactions described herein:

(a) the subject of any undertaking or agreement that is referred to in subsection 112(2.2) of the Act as a "guarantee agreement";

(b) a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5) of the Act; or

(c) the subject of a dividend rental arrangement referred to in subsection 112(2.3) of the Act as that term is defined in subsection 248(1) of the Act.

26. As part of the series of transactions that include the proposed transactions there is not:

(a) a disposition of property in the circumstances described in subparagraph 55(3.1)((b)(i);

(b) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

(c) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or

(d) an acquisition of property in the circumstances described in paragraph 55(3.1)(d), which has not been described herein.

27. The fair market value of the Amalco shares that will be owned by each shareholder, as described in paragraph 10 above, will be equal to the fair market value of the Investco and JKLMco shares owned by each respective shareholder, as described in paragraphs 1 and 2 above.

PURPOSE OF THE PROPOSED TRANSACTIONS

28. The purpose of the proposed transactions is to divide some of the property of Investco among four holding companies, namely HoldcoJ, HoldcoK, HoldcoL and HoldcoM that are respectively owned and controlled by Mr. J and Mrs. J, Ms. K, Mr. L and Mr. M, so that each of them may deal with such property independently from the others.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:

A. The provisions of subsection 87(1) of the Act will apply to the amalgamation of Investco and JKLMco, as described in paragraph 9 above.

B. The provisions of subsection 15(1) and paragraphs 87(4)(c) to (e) will not apply to any of the shareholders of Amalco as a result of the amalgamation.

C. The provisions of subsection 85(1) of the Act will apply to:

(i) the transfer of the common shares of Amalco held by Mr. J and Mrs. J to HoldcoJ, as described in paragraphs 11 and 12 above, and

(ii) the transfer of each eligible property of Amalco that is the subject of an election under subsection 85(1) to HoldcoK, HoldcoL and HoldcoM respectively, as described in paragraphs 14 to 16 above,

such that the agreed amounts in respect of each such transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a) of the Act. For greater certainty, paragraph 85(1)(e.2) of the Act will not apply to the transfers referred to herein.

D. As a result of the redemption by HoldcoK, HoldcoL and HoldcoM of their respective preferred shares held by Amalco described in paragraph 17 above and the purchase for cancellation of the shares of Amalco held by HoldcoK, HoldcoL and HoldcoM respectively described in paragraph 18 above:

(a) By virtue of paragraphs 84(3)(a) and 84(3)(b) of the Act:

(i) HoldcoK, HoldcoL and HoldcoM will each be deemed to have paid, and Amalco will be deemed to have received, a taxable dividend equal to the amount by which the amount paid to redeem the respective HoldcoK, HoldcoL and HoldcoM preferred shares exceeds the paid-up capital of such shares immediately before such redemption, and

(ii) Amalco will be deemed to have paid, and HoldcoK, HoldcoL and HoldcoM will each be deemed to have received, a taxable dividend equal to the amount by which the amount paid to purchase for cancellation the Amalco shares exceeds the paid-up capital of such shares immediately before such purchase; and

(b) By virtue of subsection 112(1) of the Act, the taxable dividends deemed to have been received by Amalco, HoldcoK, HoldcoL and HoldcoM as a result of the redemptions and purchases for cancellation referred to in paragraph (a)(i) or (ii) herein will be deductible by each of them in computing its respective taxable income for the year in which such dividends are deemed to have been received. For greater certainty, the subsection 112(1) deduction in respect of such dividends will not be denied by the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4) of the Act.

E. Provided that as part of the series of transactions or events that includes the proposed transactions described herein, there is not:

(a) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(b) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

(c) an acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(iii); or

(d) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) or 55(3.1)(d),

which has not been described herein, then by virtue of paragraph 55(3)(b) of the Act, subsection 55(2) of the Act will not apply to the taxable dividends referred to in the rulings given in subparagraph D(a) above and, for greater certainty, subsection 55(3.1) of the Act will not apply to deny the exemption from subsection 55(2) provided by paragraph 55(3)(b) of the Act.

F. By virtue of paragraph 191(2)(a) of the Act, Amalco will have a substantial interest in HoldcoK, HoldcoL and HoldcoM immediately before the redemption of the HoldcoK, HoldcoL and HoldcoM preferred shares, as described in paragraph 17 above, and HoldcoK, HoldcoL and HoldcoM will each have a substantial interest in Amalco immediately before the purchase for cancellation of the Amalco shares held by HoldcoK, HoldcoL and HoldcoM respectively, as described in paragraph 18 above. Consequently, neither Amalco, HoldcoK, HoldcoL nor HoldcoM will be subject to Part IV.1 tax under section 187.2 of the Act or to Part VI.1 tax under section 191.1 of the Act in respect of:

(a) the dividends deemed to have been paid by HoldcoK, HoldcoL and HoldcoM respectively to Amalco upon the redemption of the HoldcoK, HoldcoL and HoldcoM preferred shares since each such dividend will be an "excepted dividend" within the meaning of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act where Amalco is the recipient of the particular dividends, and will be an "excluded dividend" within the meaning of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act where HoldcoK, HoldcoL and HoldcoM are the payers of the particular dividends, or

(b) the dividends deemed to have been paid by Amalco to HoldcoK, HoldcoL and HoldcoM respectively upon the repurchase of the Amalco shares since each such dividend will be an "excepted dividend" within the meaning of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act where HoldcoK, HoldcoL and HoldcoM are the recipients of the particular dividends, and will be an "excluded dividend" within the meaning of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act where Amalco is the payer of the particular dividends.

G. The settlement and cancellation of the HoldcoK, HoldcoL and HoldcoM Notes described in paragraph 18 above will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or section 80.01 of the Act.

H. The provisions of subsections 15(1), 56(2), 56(4), 69(4) and 246(1) of the Act will not apply to the proposed transactions, in and by themselves.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.

The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.

COMMENTS

1. Nothing in this ruling should be construed as implying that the Canada Customs and Revenue Agency has agreed to or reviewed:

(a) the determination of the fair market value or ACB of any particular asset or the paid-up capital of any shares referred to herein; or

(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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